Dec '11/Jan '12

Is resource nationalism the new normal?

Summit explores opportunities in an increasingly risky environment

By
B. Campbell

Fiscal intervention is here to stay, according to Luis Mualim, vice-president of risk and audit at Antofagasta Minerals. He spoke at the 2011 Mining Business Risks Summit held in Toronto on October 25 and 26, and was not alone in his concern that resource nationalism is set to change the face of the mining industry. There were 115 delegates this year – about 20 more than last year’s inaugural event in Vancouver.

“We have a new guest at the table,” said Mualim, who hails from Chile, where Antofagasta has four copper mines, as well as a railway. “We have to learn to live with a new normal,” he said. Mualim reminded delegates attending the event that resource nationalism now claims the number one risk spot for mining and metals companies as governments worldwide seek a greater share of the profits through measures like taxes, royalties and increased local participation in projects.

Risk is indeed on the rise worldwide. “Three-quarters of the mining jurisdictions have demonstrated increased relative risk over the past year,” said Robin Adams, managing consultant at CRU Strategies, citing key countries such as Australia, Brazil, India and South Africa.

Mualim made reference to Ernst & Young’s report, “Business Risks Facing Mining and Metals 2011-2012,” which showed resource nationalism jumping from fourth place in the past year to first. According to the report, the rise of this particular risk flows from the mining sector’s relatively speedy rebound after the global financial crisis of 2008. As a result of booming business, some countries struggling to generate revenue have begun to see profitable mining companies operating within their borders as potential solutions to their financial woes.

The topic of resource nationalism was never far beneath the surface throughout the summit, which offered insights and tips to help delegates tackle risks effectively and proactively. And although risk was under the microscope, the overall message was far from negative. Fiscal intervention generates instability and uncertainty, according to Mualim, but companies that acknowledge, anticipate and mitigate risks – and forge transparent relationships with host governments – can look forward to novel and exciting opportunities.

“Countries with copper potential should be on the radar,” said Mualim, who sees sustained growth for mining over the next decade. “Urbanization in China, India and Africa is of an unprecedented scale and will drive demand for infrastructure and consumer minerals.”

In today’s economy, no jurisdiction is insulated from change, and mining risk is in flux at home as well as abroad. Jean Masson, a partner at Fasken Martineau DuMoulin, outlined what he sees coming in Quebec in light of the province’s Plan Nord. “The mining industry will be the driving force behind this development,” he said, describing opportunities throughout the province. However, Masson also expressed concern about whether permits can be issued within reasonable timeframes and that “the Ministry of Sustainable Development, Environment and Parks lacks the resources to diligently examine the projects that have been submitted for review.”

There were other bright spots as well, as mining companies have made great strides in mitigating environmental risk. John Gardner, director of environment and sustainability at Alcoa, delivered an inspiring account of the advances his company has made to meet sustainability challenges in Western Australia.

“We have taken a very scientific-based approach to developing a restoration program,” said Gardner, a biologist himself. Alcoa has rehabilitated three-quarters of the area where it began mining bauxite in 1962, and returned close to 100 per cent of the native plants, animals, birds and reptiles. The company has also addressed pollution, with continual monitoring of water quality through to mitigating the effects of noise, even issuing text messages alerting local dairy farmers when blasting is imminent.

Such activities can certainly boost the mining industry’s reputation among NGOs like World Wildlife Fund Canada, whose vice-president of strategic partnerships, Hadley Archer, gave a bird’s-eye view of his organization’s perspective. Archer was quick to pinpoint relationships his organization is building with companies such as De Beers Canada and, most recently, Goldcorp. But much more work is needed, he warned. If biodiversity decline continues as it has since the organization was formed in the 1960s, he said, “by 2030, we will need two planets to sustain us.”